Mass. Market: The rise and fall of a doughnut empire

Tuesday

Like many new Krispy Kreme stores at the time, the first one that opened in Massachusetts four years ago drew heavy media attention and lines of hungry customers.

But by the time the company baked its final doughnut in Massachusetts last month in Dedham, it seemed like no one was paying attention anymore. There were no TV crews or write-ups in the Boston papers. The Winston-Salem, N.C.-based company didn't even issue a formal press release.

When asked why the chain closed its last store in Massachusetts and its final Rhode Island shop in Cranston, spokesman Brian Little provided just a cursory response: ''These two locations were closed as part of our turnaround.''

Of course, there's a lot more to the story. To some extent, Krispy Kreme's failure to break into the New England market -- you can still buy doughnuts in certain locations in Connecticut, but that's about it -- has been mirrored in other parts of the country where the company tried to expand too quickly.

Krispy Kreme executives also underestimated Dunkin' Donuts and how firmly rooted the Canton-based chain is in many New Englanders' daily routines.

Leo Vercollone, president of Duxbury-based convenience store operator Verc Enterprises, says he never even considered replacing Dunkin's doughnuts on his store shelves with Krispy Kreme's. ''If you've got Tom Brady, why look to get the rookie out of college?'' he says. ''Sure the rookie may become good in a few years, but if you've got Tom Brady, why mess with it?''

Krispy Kreme Doughnuts Inc. entered Dunkin' Donuts' home state in 2003 with the opening of a shop in Medford. To enter the New England market, Krispy Kreme had hooked up with The Jan Companies, a successful Burger King franchisee in Rhode Island. They formed New England Dough LLC, with a 15-year arrangement and plans to open 16 locations together by the end of 2005.

However, by the time Jan and Krispy Kreme decided to part ways in December 2005, New England Dough had only opened eight shops in New England – and four of them had already closed.

The partners divvied up the remaining locations: Jan kept the Krispy Kreme operations at the Mohegan Sun casino and Krispy Kreme took over the other three stores in Dedham, Cranston and Milford, Conn. Krispy Kreme continued to use those bakeries to make doughnuts for other local retailers such as Shaw's Supermarkets and Tedeschi Food Shops.

Then the Dedham and Cranston stores closed July 12, also shutting down the company's last wholesale operations in Massachusetts and Rhode Island.

In Dedham, the red-and-green Krispy Kreme logo on its sign above Providence Highway has been painted black, appropriately enough.

From California to New York, Krispy Kreme has been steadily shutting down shops in the past three years as it tries to recover from a slump that caused its stock to fizzle from a high of nearly $50 a share in 2003 to its current levels of $6 to $7 a share.

The company's well-publicized accounting scandals, in which some key former executives were accused of cooking the books to present an overly rosy picture of the finances, were apparently just a symptom of larger problems.

Experts at Technomic Inc., a restaurant consultancy in Chicago, point to several reasons why Krispy Kreme quickly turned from a revered icon to yesterday's fad. They say the company, under pressure from stockholders to pump up sales, failed partly because it tried too hard to sell doughnuts in too many places, quickly diminishing its cult appeal. Technomic president Ron Paul says the chain's brand became tarnished after you could pick up its doughnuts at a local gas station.

Krispy Kreme also had the misfortune of making its expansion push about five years ago, just as the low-carb craze was reaching its peak, says Technomic executive vice president Darren Tristano. Unlike Dunkin' Donuts, Krispy Kreme hasn't moved fast enough from its reliance on its doughnut sales.

Executives recently unveiled plans to boost coffee sales and introduced a wheat doughnut with more fiber and 20 fewer calories than the chain's regular doughnut.

The roughly 400-store chain's latest financial results show it still has plenty of work to do before its turnaround is complete: Revenue fell 7 percent in the first quarter of this year from the same period last year, and the company lost millions of dollars in both quarters.

At the same time, Krispy Kreme is expanding steadily in overseas markets.

Tristano says Krispy Kreme still benefits from international markets where ''people are still looking for opportunities for sweets.''

Of course, New Englanders have long had plenty of opportunities. The near-ubiquity of Dunkin' signs dotting the New England landscape has made it all but impossible to make inroads here. Just ask Canada's Tim Hortons.

Perhaps the best explanation for Krispy Kreme's local demise can be found at the Tedeschi Food Shops headquarters in Rockland, where Rick Armstrong tracked the sales of Krispy Kreme doughnuts at 10 Tedeschi shops. There was a surge in sales at first, but eventually interest in the doughnuts waned.

Tedeschi stopped selling them about a year ago at all of the shops except a franchisee-owned location in Acton, says Armstrong, Tedeschi's director of food services.

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